ESG: Why the term has become indispensable for German companies

Johanna Odenhausen

In this article, we explain why ESG is gaining relevance and how you can establish and integrate ESG measures in your company.

ESG in 4th place as a driver for transformation needs!
The theme of sustainability and ESG gained significant prominence in our recent study, #SHIFTHAPPENS2022. ESG has broken into the top 10 as a transformational driver for the first time, securing the 4th position directly. However, initiatives targeting specific ESG goals are presently not given the same priority as those at the management level. While the importance of the topic is recognized, there remains a need to translate it into more tangible operational actions. We see this as an opportunity to elucidate the concept and advocate why companies should commit to sustainability efforts promptly. In doing so, we offer practical insights into ESG criteria and highlight best practices.

ESG as a transformation driver

What does ESG mean?
The acronym ESG represents Environmental, Social, and Governance, encompassing the three key areas of corporate responsibility: environmental stewardship, social impact, and governance practices. It assesses a company's sustainable contributions to the economy and society, as well as its consideration of environmental and social factors. Often interchangeable with Corporate Social Responsibility (CSR), ESG focuses on how companies serve society and how this impacts their present and future performance. Widely recognized both internationally and in finance, ESG benchmarks aid investors in evaluating companies' sustainable management practices.

5 reasons why organizations should take ESG and sustainability seriously

  1. There's a growing demand from stakeholders across the board for transparency in disclosing ESG factors and managing sustainability. Our latest findings from #SHIFTHAPPENS2022 underscore that evolving customer preferences remain key drivers of transformation. Transparency in the realm of ESG is poised to play a pivotal role in meeting these changing needs.

  2. Legal requirements for reporting are becoming more stringent and will impact a broader swath of companies going forward. The EU's proposed directive on corporate sustainability reporting (CSRD) aims to extend non-financial reporting obligations to European firms.

  3. Sustainable management can lead to enhanced performance, such as cost savings through efficient resource utilization, including energy and water.

  4. Companies stand to gain competitive advantages through improved customer perception, higher employee retention rates, and the long-term assurance of profitability.

  5. ESG considerations are intricate and touch upon every aspect of a company's operations, across all levels and functions, regardless of industry. Implementing sustainable practices typically involves a significant investment of time. Therefore, it's crucial for companies to proactively integrate these initiatives into their strategies at an early stage.

An overview of tips on how to integrate ESG measures into your organization in a sustainable way:

E (Environment)
Strive for climate neutrality in your production facilities and offices by embracing renewable energy sources for electricity, adopting sustainable construction practices, and implementing green building management techniques. Be discerning when selecting suppliers! With the new EU supply chain law taking effect for most companies from 2023 onward, it's crucial to ensure that your suppliers adhere to ESG guidelines. Consider utilizing your supplier code to encourage compliance or revising components where necessary.

S (Social)
Enhance the well-being and work environment of your employees by offering flexible working hours, remote work options, health and wellness programs, and support for sustainable transportation choices like bicycle commuting or public transit. Demonstrate your company's commitment to social responsibility by engaging in initiatives such as supporting SOS Children's Villages or participating in charity events like a fundraising run.

G (Governance)
Promote equal opportunities and diversity within your organization through the implementation of policies and the provision of diversity training for HR staff. Emphasize measures that ensure the long-term profitability of your company while safeguarding the interests of current and future generations. Integrate sustainability management and ethical business practices at the highest levels of governance, including the board of directors and supervisory board, and reflect these principles in your corporate values. While this may require initial investments, the long-term benefits make it a worthwhile endeavor.

Best Practice Examples of ESG Measures:

Vaude produces outdoor and sports articles out of old car tires or plastic waste, which can be recycled in turn. This circular economy is a perfect example of ESG.

Kärcher manufactures products for the cleaning market worldwide through a CO2-neutral, sustainable process. The company relies on green electricity and offsets unavoidable emissions by supporting climate protection projects.

The German HR software Personio operates offices with green electricity, where vegetarian and vegan canteens are planned. In addition, the company offers so-called Impact Days to participate in social and ecological projects as a team. So in this case, not only the environmental aspect is in the foreground, but also the social component.

ESG issues and criteria have also reached the management level in the automotive industry. Volvo, for example, has set itself the goal of becoming climate neutral and introducing a circular economy by focusing on resource efficiency and waste avoidance.

Capital management companies such as Allianz Global Investors use ESG criteria to conduct portfolio analyses of investments. For example, Allianz Global Invest manages sustainable and responsible investment funds and enables money to be invested sustainably through these investments.

Microsoft’s software company also sets a good example: the ESG criteria are considered in corporate management, especially in the social area. Microsoft is sustainably committed to human rights and the equality of the LGBTQ+ community and offers its employees internal childcare, among other things.

Do you want to learn more about current transformation activities? In our #SHIFTHAPPENS2023 study, you will get exciting insights from over 460 well-known experts on the latest transformation activities, drivers, and measures!


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